History 101

The whole point to a value added tax (VAT) is that we add value as we go through the stages of production. Raw materials in the earth have no value. They begin having value when we extract them. Raw iron ore gains value when we process the iron out of the rock. A Great Lakes freighter full of taconite pellets (processed from low-grade iron ore flint-like rock) is worth more than the same weight of the low-grade iron ore flint-like rock. These taconite pellets gain value when we transform them into steel in a blast furnace. That steel gains more value when we transform it into steel products (like a truck frame or a refrigerator). The finished goods we incorporate these steel products into gain even more value.

The VAT tax applies a tax on the increased value at every stage in the stages of production. It’s a way for government to collect a lot of tax revenue without using something obvious like a sales tax. Because no one but the government knows all the tax collected on all that value created. Which is a very important point. Increasing value increases tax revenue. And that’s because increasing value increases wealth. Making economically advanced countries (with a lot of economic activity throughout the stages of production) wealthy countries. Giving them an advanced industrial base. An extensive infrastructure. And a high standard of living.

Free market capitalism maximizes this wealth creation. Free markets. Free trade. And free labor. Where people can work hard to learn a skill that will give them more value. And the ability to create more wealth with their labors. Allowing them to earn a nice paycheck. That they can use in the market place to buy things. Contributing to economic activity. And the wealth creation in the country. As well as the tax base. The greater the population the greater the number of people engaging in economic activity. The greater the number of retail stores. The greater the wholesale industry. The greater the manufacturing base. And the greater amount of raw material extraction. All of this activity producing an advanced nation. That can build whatever it needs.

Lincoln’s Emancipation Proclamation made it Impossible for the Europeans to Support the Southern Cause

There were two Americas in the mid 1800s. An industrial North. And an agricultural South. An advanced nation in the north based on free labor. And medieval economy based on slave labor in the south. In the north they had factories, shipyards, railroads and everything else a modern industrial nation had. In the south they had cotton. In the north they had a growing population of free men. In the south they had a growing population of slaves. In 1861 the North had a population of about 22 million. The South had a population of about 5.5 million free men. And about 3.5 million slaves. So the North enjoyed explosive economic activity creating great wealth. While the South enjoyed great wealth from their cotton. For the few plantation owners. The slaves didn’t enjoy any of that wealth. While the majority of the white population struggled to scratch out a living on small family farms.

When the American Civil War broke out the South was at a distinct disadvantage. For technology wins wars. And the North was far more technologically advanced than the South. As Rhett Butler said in Gone with the Wind, “They’ve got factories, shipyards, coal mines…and a fleet to bottle up our harbors and starve us to death. All we’ve got is cotton, and slaves and…arrogance.” Which was true. But in their arrogance they thought that King Cotton would trump all of the North’s advantages. By bringing in the British on the South’s side. Because Britain bought a lot of that southern cotton. And the South was sure that Britain would support their cause to maintain that cotton flowing to their textile and garment industries. They thought wrong.

Cotton was a raw material. And other people could grow it just as well as the southern plantations. Yes, the self-imposed cotton embargo by the South on Britain hurt the British. Causing a major interruption to their textile and garment industries. But it didn’t take long to replace that Southern cotton with Egyptian and Indian cotton. And in no time the British industries were up and running again as if nothing had happened. Creating higher orders of wealth than the raw cotton resources of the South. Which was a problem for the South. For there was no way for them to break the blockade of their harbors without European help. But that help would never come. Because the only thing they had to offer, cotton, was available elsewhere. Not to mention the fact that Britain had emancipated her slaves. And was working diligently to interdict the Atlantic slave trade. So they weren’t coming to the South’s aid. And if Britain wasn’t going to help then neither were the French. And Lincoln’s Emancipation Proclamation was just the icing on the cake. Making it impossible for the Europeans to support the Southern cause. It then became a matter of time for the technologically advanced north to defeat the medieval South.

The South’s Old World Economy was just no Match for the New World Economy of the North

Outmanned, out manufactured and with no foreign recognition the South learned the lesson that an economy based on slave-labor was no match for an economy based on free market capitalism. For the slave-based agricultural economy was little different than the feudalism of the Middle Ages. A system long since abandoned in Europe but clung on to in the Confederate South. Concentrating the wealth in a few hands. The landed aristocracy. And a small middle class of artisans and business owners primarily to serve the planter class. While everyone else, whites and slaves, worked hard and barely survived. The blacks of course suffering more than the whites. But they both lived in poverty.

The advanced economy of the industrial North built ships, cannon, rifles, bullets, locomotives, track and everything else a modern industrial economy has. Their ships commanded the rivers and the southern coast. The South was cut off from the rest of the world. Their valuable cotton sitting worthless in warehouses because there was no one to sell it to. Not even in the South. For while the North had a textile industry the South did not. With no way to add value to this cotton this cotton lost all value. And the Southern economy collapsed. Because cotton was all they had. Well, that, and arrogance. But when that cotton became worthless the South had nothing. And little choice but to surrender. And they did. First General Lee to General Grant. Then General Johnston to General Sherman. And soon the war was over.

It took some 4 years and about 600,000 dead. Which is especially sad considering the South never had a chance. Their Old World economy was just no match for the New World economy of the North. With the thing they were fighting for, slavery, being the cause for their defeat. For slavery may have worked in a medieval agricultural-based economy. Where there were no stages of production. Just procurement of raw material. But it was no match for free men working in free market capitalism. Which is why the North prevailed in the Civil War. And why the United States went on to be an economic superpower. And leader of the free world. Thanks to President Lincoln. Who freed the slaves. And the South from its Old World past. Unleashing human capital everywhere throughout the United States. And allowing all people to engage in economic activity. Though the freed slaves would suffer discrimination for decades under the Southern Democrats. And their Jim Crow Laws (separate but equal). But the Republicans would eventually usher in civil rights legislation ending that. Just as they ended slavery. Allowing all people to live a better life under free market capitalism.